ICICI Bank has reportedly sought recoveries of at least ₹100 crore from fintech companies over alleged merchant category misclassification, bringing renewed attention to compliance practices in India’s digital payments ecosystem.
According to industry sources, the private-sector lender has initiated disputes through Visa, claiming that merchant categories were incorrectly classified into lower-interchange segments, resulting in reduced interchange income for issuing banks.
The move is among the first major actions of its kind and reflects growing concerns among banks over merchant category classification practices that may have impacted interchange revenues over the past year. Sources indicated that Visa has asked the companies involved to return nearly ₹100 crore to the issuing bank as part of the dispute process.
The Reserve Bank of India (RBI) has reportedly been examining such practices since 2025, with increased supervision of payment aggregators and fintech firms during routine audits. Regulatory scrutiny has intensified as authorities focus on compliance and operational transparency within the payments sector.
Merchant misclassification typically involves placing retail merchants under lower-interchange categories, such as utilities or education, allowing payment aggregators to offer lower processing costs while improving their margins. However, issuing banks may lose a portion of their interchange earnings as a result.
Industry sources noted that while the practice is not new, it has raised concerns around compliance and governance. Some experts believe that lapses by a few payment aggregators could affect investor confidence and the credibility of the broader digital payments ecosystem.
Sources also suggested that other banks may pursue similar actions, potentially increasing financial liabilities for fintech companies. This comes at a time when many fintech firms are already facing pressure to strengthen revenues and justify valuations, particularly as UPI transactions continue to operate without merchant discount rates or transaction fees.
Industry stakeholders say resolving such disputes remains challenging due to the complexity of merchant category code (MCC) classifications, with more than 1,000 categories in use. Card networks and payment ecosystem participants are reportedly exploring long-term solutions, though a complete resolution may take several years.
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